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A significant rule change introduced to deal with the Covid-19 pandemic came handy in the recent military operations against Pakistan, allowing the India government flexibility in drawing funds. The Covid-19 pandemic-drive change means the union government can finance any war with up to ₹30,000 crore without falling foul of spending rules.
The changes were the increase in the corpus of Contingency Fund of India from ₹500 crore to ₹30,000 crore, approved by Parliament in FY22. The Contingency Fund is an imprest mechanism mandated by the Constitution of India that allows the Centre to finance unforeseen expenditures which arise when Parliament is not in session.
This eased up discussions between the PMO and the defence and finance ministries about the cost issues and the need to call for an immediate Parliament session. A top official aware of the developments said since the expanded kitty is available, the government will also not need to consider raising additional funds through a war cess immediately.
Under the expenditure rules of the government of India, any money to be spent by the executive has to be approved by Parliament before the outlay is made. The only exception allowed is for money to be withdrawn from the Contingency Fund of India. Once the emergency is over or a session of the Parliament happens, the executive regularises the expenditure by tabling the details of the money spent in the Lok Sabha.
The Contingency Fund of India was established under Article 267 (1) of the Constitution as an imprest, that is money maintained for a specific purpose. The Contingency Fund of India Act, 1950 operationalised the clause and allocated a sum of ₹15 crore towards it to meet “unforeseen expenditure”.
During the Covid pandemic, the government regularly needed additional money to pay for vaccines, oxygen, and various other measures. The budget under the health ministry was difficult to draw upon to finance these exercises as any changes there would need prior authorisation of Parliament. In the current situation, the government can use the same route to keep the defence forces supplied with all their requirements at the shortest possible notice.
All money the government of India receives as tax and non-tax revenue is deposited in the Consolidated Fund of India. Any payment from here, including salaries or interest on debt, has to be authorised by the Lok Sabha. This is done through the Appropriations Bill placed by the finance minister as part of the Budget papers every year. Any changes to spending also have to be cleared by Parliament. To meet delays and to provide for unexpected expenditure, the Constitution provided for setting up of the Contingency Fund as a supplement to the Consolidated Fund. The government also receives other funds, like the small savings fund, which is not its own but passes through the system and is parked in a third fund known as Public Accounts.
Over decades, the Contingency Fund was periodically raised and by FY2006 it reached ₹500 crore. Piloting the bill to amend the Act, finance minister Nirmala Sitharamn in FY22 noted that the “problem of a low corpus was felt acutely during Covid-19 when the Parliament couldn’t meet and conduct business”. She also made a significant change in the way the Fund could be operated. While earlier the Fund was operated only by the department of economic affairs in the finance ministry, the changes allow 40 per cent of the money to be placed with the department of expenditure. Since it is the expenditure department which makes the actual allocation to a department or a ministry, the flexibility allows faster defraying of the money, given that it does not need approval from the secretary of department of economic affairs.
The Contingency Fund of India established under Article 267 (1) of the Constitution is in the nature of an imprest (money maintained for a specific purpose) which is placed at the disposal of the President to enable him/her to make advances to meet urgent unforeseen expenditure, pending authorisation by the Parliament. Approval of the legislature for such expenditure and for withdrawal of an equivalent amount from the Consolidated Fund is subsequently obtained to ensure that the corpus of the Contingency Fund remains intact. The corpus for the Union government at present is ₹30,000 crore and can be enhanced from time to time by the Union Legislature. The ministry of finance operates this Fund on behalf of the President of India
